Karachi, VIS Credit Rating Company Limited (VIS) has retained the entity ratings of Engro Powergen Qadirpur Limited (EPQL) at 'AA-/A-1', citing strong credit quality and timely payment assurance. The outlook for these ratings has shifted from 'Stable' to 'Positive' since the last assessment in July 2022.

According to a news release by VIS Credit Rating Company Limited, the ratings given to EPQL highlight the low business risk primarily attributed to a 25-year power purchase agreement (PPA) that features a 'take or pay' clause with the Central Power Purchasing Agency (CPPA-G), effective from the Commercial Operations Date (COD). An Implementation Agreement (IA) between EPQL and the Government of Pakistan through the Private Power Infrastructure Board (PPIB) was established in 2007. This long-term PPA assures guaranteed capacity payments, offsetting any off-take risks, especially when the obligations of the power purchaser are supported by a sovereign guarantee. The ratings further underscore EPQL's solid financial health and the expertise of its backing entity, Engro Energy Limited. EPQL's resilience to fluctuations in fuel supply and price is bolstered by a lasting supply agreement and the tariff's integrated cost recovery provision. Notably, from January 2022, the Operations and Maintenance tasks for the facility have been internalized, with the operational performance consistently matching the normative benchmarks set in the PPA.

The ratings also encompass a thorough financial risk evaluation, highlighting robust debt coverage metrics alongside sustained cash flow. EPQL has sustained a debt-free status in its long-term balance sheet since FY20, resorting only to short-term loans to cater to working capital needs. Furthermore, leverage metrics have remained steady and favourable. EPQL is presently navigating challenges due to reduced gas supply from the dwindling Qadirpur gas field, compelling a mixed mode operation using both gas and High-Speed Diesel. However, while in this mixed mode, EPQL retains its entitlement to full capacity payments. In response to the gas shortage, EPQL has proposed a Gas Depletion Mitigation Plan to PPIB, detailing strategies for alternate fuel solutions. In 2022, EPQL secured an indigenous gas supply from the Badar gas field, overseen by Petroleum Exploration Limited (PEL). Concurrently, the company has sought a generation license and tariff modification approval from the National Electric Power Regulatory Authority (NEPRA), continuing active engagements for regulatory clearances. The rating's outlook shift reflects EPQL's robust business and financial risk positioning. Nevertheless, the final ratings will be contingent on EPQL's capacity to maintain operational efficacy, sustain profitability, and acquire necessary approvals from NEPRA.